National Retail Properties (NNN -1.88%) has an amazing dividend track record. The real estate investment trust (REIT) has increased its payout for an incredible 33 straight years. That would easily qualify it as a Dividend Aristocrat. However, National Retail Properties isn't on that elite list because it's not a member of the S&P 500 Index.
That's likely causing some income investors to completely overlook the company. Here's a closer look at why dividend seekers won't want to miss out on this underappreciated REIT.
Getting to know National Retail Properties
National Retail Properties is a retail REIT, focused on owning single-tenant, freestanding properties leased to national and regional retail tenants. It focuses on tenants less susceptible to the threat of e-commerce. The REIT also concentrates on selective non-investment-grade tenants because it can get better pricing and rent growth.
Meanwhile, it utilizes long-term net leases (NNN) that make the tenant responsible for paying real estate taxes, maintenance, and building insurance. Those leases generate reliable income with low volatility. Many feature annual rental-rate escalation clauses, supplying the REIT with rising rental income.
National Retail Properties owns over 3,300 properties leased to more than 370 national and regional retail tenants. These include properties leased to tenants who operate convenience stores, auto services, restaurants, family entertainment centers, and other e-commerce-resistant retail businesses. The steady income from that large property portfolio helps support the company's 5.1%-yielding dividend.
The REIT further supports its dividend with a healthy dividend-payout ratio. It's currently 67% of its adjusted funds from operations (AFFO), which is the lowest in its peer group.
That enables the company to retain more cash to fund new property acquisitions. National Retail Properties also has a solid investment-grade balance sheet, giving it additional financial flexibility for expanding its portfolio.
An elite REIT
National Retail Properties has steadily grown its portfolio over the years by acquiring additional net lease retail properties. It primarily sources deals through existing relationships, where it will lease other properties from a tenant in a sale-leaseback transaction. It will also buy them on the open market. Since 2007, National Retail Properties has acquired more than $6 billion of properties via existing relationships (71% of its volume) and nearly $2.5 billion through market deals (29%).
These acquisitions and rising rental income from existing properties, driven by contractual rate escalations, have enabled National Retail Properties to steadily grow its AFFO per share. That's helped support steady dividend growth for more than 30 straight years. The company has expanded its dividend at a healthy 5% annual rate over the last five years.
That steady growth in AFFO per share and the dividend have helped drive superior total returns for National Retail Property shareholders over the years. The REIT has delivered an average total annualized return of 12.4% over the last three decades, outperforming REITs (10.4%) and the S&P 500 (9.8%) during that period. National Retail has also outperformed REITs during the last five-, 10-, 15-, 20-, and 25-year periods.
A worthy consideration for dividend investors
National Retail Properties has been an elite dividend stock over the last few decades, even though it doesn't get official recognition for its ability to steadily increase its dividend. That might cause some to overlook the company, potentially missing out on its lucrative payout.
However, income-focused investors should take a closer look at National Retail Properties. With a strong financial profile, the REIT should have no problem continuing to expand its real estate portfolio and dividend in the future.
